Question

Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow:

		Product
		Flight Dynamic			Sure Shot			Total
Sales	$	650,000		$	350,000		$	1,000,000
CM ratio		64	%		73	%		?

Fixed expenses total $595,000 per month.

Required:

1. Prepare a contribution format income statement for the company as a whole.

2. What is the company's break-even point in dollar sales based on the current sales mix?

3. If sales increase by $52,000 a month, by how much would you expect the monthly net operating income to increase?

Answer 1

1) Contribution margin income statement :

	Flight dynamic	Sure Shot	Total
Sales	650000	350000	1000000
Variable cost	234000	94500	328500
contribution margin	416000	255500	671500
Fixed expense			595000
Income from operation			76500

2) Break even point in dollars :

Weighted average contribution margin = (64%*65%+73%*35%) = 67.15%

Break even sales dollar = 595000/.6715 - $886076

3) Net operating income increase by = (52000*67.15%) = $34918